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Sunday, December 4, 2016

The Bad GDP Report Is A Warning Not To Create Another Roosevelt Recession

The Bad GDP Report Is A Warning Not To Create Another Roosevelt Recession

President Obama should begin his second term much like the first and demand stimulus to bolster a sagging economy.

The only real capital of a nation is its natural resources and its human beings. So long as we take care of and make the most of both of them, we shall survive as a strong nation, a successful nation and a progressive nation—whether or not the bookkeepers say other kinds of budgets are from time to time out of balance.

This capital structure—natural resources and human beings—has to be maintained at all times. The plant has to be kept up and new capital put in year by year to meet increasing needs. If we skimp on that capital, if we exhaust our natural resources and weaken the capacity of our human beings, then we shall go the way of all weak nations. —Franklin D. Roosevelt, 1938

In a somewhat surprising announcement, the Commerce Department noted yesterday that the U.S. economy actually shrank in the fourth quarter of last year, contracting by 0.1 percent. This sharp decline from the 3.1 percent growth rate posted in the previous quarter has not as yet lead to widespread fears that the United States is about to enter another recession, but given that much of the cause of the decline can be attributed to cuts in government spending, some economists worry that this news is but a harbinger of things to come. We are, after all, facing another government-manufactured showdown on March 1, as well as a possible government shutdown near the end of March when the stopgap measure financing the federal government expires. Then there is the expected fight over raising the federal debt ceiling, which could lead the U.S. to default on its debts.

Most economists agree that the uncertainty brought about by the dysfunctional nature of Washington is having a negative effect on the economy. But we hear little about the direct effects that cuts in government spending have had on job growth. How many Americans, for example, are aware that one of the primary drivers of our persistently high unemployment rate is the sharp decline in public sector employment—the massive layoffs of teachers, firefighters, police officers, and other public sector employees over the past two years? We might also ask how many Americans recognize that one of the primary ways President Obama managed to stop the downward economic spiral at the start of his first term was through the funding of public sector jobs via the stimulus funds that were channeled to state and local governments. Indeed, it was the expiration of that federal support, and Congress’s refusal to support the president’s modest request for additional federal dollars to support state and local governments in his jobs bill, that initiated the recent public sector decline.

Now at the start of President Obama’s second term, with the U.S. economy still in a very fragile state, we are reminded once again of the direct link between government spending and jobs. For it was the deep cuts in federal defense spending that helped push the economy into negative territory in the past quarter.

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